Thursday, February 24, 2005

Want to make money off of David Bowie? James Brown? Casper the Friendly Ghost? Read this, from the Financial Times:

Stockpicking is best left to monkeys with darts and fortune tellers. The way to really make money is to look for the pockets of inefficiency where you can perform a service and charge handsomely for it.

I like the asset-backed lending space because it usually involves significantly higher-than-prime interest rates, and assets backing the coupon payments in the case of a default. I've written here about asset-backed lending in the past and mentioned a few hedge funds that do this sort of lending ranging from subprime auto-finance to life insurance premium financing, to mortgage-backeds. But, more importantly, I just bought an iPod and I've downloaded a special selection of "Fame", "Heroes", and "Rebel, Rebel" by David Bowie, as well as "I Feel Good" by James Brown, "Ain't No Mountain High Enough" by Ashford & Simpson and "Its Your Thing" by the Isley Brothers.

Why those songs? Because they are all assets that have been used to form Pullman Bonds, developed by David Pullman.

Pullman started these with the so-called Bowie Bonds, constructed in 1997 - a $55m deal securitized by the assets from David Bowie's extensive catalog of 25 gold albums and paying a 7.9 per cent interest rate. The bonds are self-liquidating, meaning every year the remaining balance goes lower. Moody's has an investment-grade rating of BBB+ on the bonds.

...What I like about these assets is that they are completely uncorrelated to stocks and even economic cycles. If you hear "Heroes" playing in the background in a department store, someone is getting paid a royalty even though you are hearing that music for free. After that initial Bowie deal, Pullman worked with artists such as James Brown, The Isley Brothers, Ashford & Simpson, and even the estate of John Steinbeck and the creators of cartoon character Casper the Friendly Ghost (hey, diversification).

So I called Pullman to find out more. How did it start? What's the next step? And how can investors get a hold of his product?

"David Bowie was thinking of selling his masters and I was working with his business manager at the time and we decided it would be in his better interest to securitise the cash flows instead. So now he still owns the masters, the income from the songs are better than ever, and the investors are happy since the principal has gone down every year because these are self-liquidating bonds, plus they got the 7.9 per cent interest they signed up for."

..."James Brown is making more money on "I Feel Good" than when it was a #1 hit in 1965, adjusted for inflation, despite MP3, Napster, filesharing, whatever. There's been a proliferation of outlets for music. Apple sold 4m iPods last year. That's an entire industry of people buying songs online now. The cash flows for the top-charted artists of all time are bigger than ever and that's who we like for these deals. When Moody's downgraded EMI to junk in March, 2004 they only downgraded the Pullman Bonds we put together for David Bowie to BBB+ which is still investment grade. In other words, Bowie's cash flows are rated higher than the record label's cash flows."--------Put another dime in the jukebox, baby.